Shathaia et al v. Travelers Casualty Insurance Company of America
Filing
66
OPINION AND ORDER denying 41 Motion for Summary Judgment; granting in part and denying in part 52 Motion for Partial Summary Judgment. Signed by District Judge Patrick J. Duggan. (MOre)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
TAM SHATHAIA, SHATHAIA
BROTHERS PROPERTY, LLC and
SHATHAIA BROTHERS, INC. d/b/a
GRATIOT-MAYFIELD MARKET,
Plaintiffs,
Case No. 12-cv-13657
Honorable Patrick J. Duggan
v.
TRAVELERS CASUALTY INSURANCE
COMPANY OF AMERICA,
Defendant.
___________________________________/
OPINION AND ORDER (1) DENYING PLAINTIFFS’ MOTION FOR
SUMMARY JUDGMENT AND (2) GRANTING IN PART AND DENYING
IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
This lawsuit arises from a fire at the Gratiot-Mayfield Market in Detroit,
Michigan, and Plaintiffs’ claim for coverage for the resulting loss under an
insurance policy issued by Defendant Travelers Casualty Insurance Company of
America (“Travelers”), Policy of Insurance #I-680-2642N436-ACJ-11 (“the
Policy”). Presently before the Court are the parties’ cross-motions for summary
judgment filed pursuant to Federal Rule of Civil Procedure 56. The motions have
been fully briefed and the Court held a motion hearing on November 19, 2013. For
the reasons that follow, Plaintiffs’ motion is denied and Travelers’ motion is
granted in part and denied in part.
I.
Summary Judgment Standard
Summary judgment pursuant to Federal Rule of Civil Procedure 56 is
appropriate “if the movant shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.” Fed R. Civ. P.
56(a). The central inquiry is “whether the evidence presents a sufficient
disagreement to require submission to a jury or whether it is so one-sided that one
party must prevail as a matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 251-52, 106 S. Ct. 2505, 2512 (1986). After adequate time for discovery and
upon motion, Rule 56 mandates summary judgment against a party who fails to
establish the existence of an element essential to that party’s case and on which
that party bears the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317,
322, 106 S. Ct. 2548, 2552 (1986).
The movant has the initial burden of showing “the absence of a genuine
issue of material fact.” Id. at 323, 106 S. Ct. at 2553. Once the movant meets this
burden, the “nonmoving party must come forward with specific facts showing that
there is a genuine issue for trial.” Matsushita Electric Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356 (1986) (internal quotation marks
and citation omitted). To demonstrate a genuine issue, the nonmoving party must
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present sufficient evidence upon which a jury could reasonably find for that party;
a “scintilla of evidence” is insufficient. See Liberty Lobby, 477 U.S. at 252, 106 S.
Ct. at 2512.
“A party asserting that a fact cannot be or is genuinely disputed” must
designate specifically the materials in the record supporting the assertion,
“including depositions, documents, electronically stored information, affidavits or
declarations, stipulations, admissions, interrogatory answers, or other materials.”
Fed. R. Civ. P. 56(c)(1). The court must accept as true the non-movant’s evidence
and draw “all justifiable inferences” in the non-movant’s favor. See Liberty Lobby,
477 U.S. at 255, 106 S. Ct. at 2513.
A court reviewing cross-motions for summary judgment, must evaluate each
motion on its own, applying the above standard. Westfield Ins. Co. v. Tech Dry,
Inc., 336 F.3d 503, 506 (6th Cir. 2003) (citing Taft Broad Co. v. United States, 929
F.2d 240, 248 (6th Cir. 1991)).
II.
Factual and Procedural Background
In 2008, Plaintiff Tam Shathaia was presented with the opportunity to
purchase the Gratiot-Mayfield Market (“GMM”), a party/convenience store located
at 13105 Gratiot Avenue in Detroit, Michigan, from Yassir Hakim. Mr. Shathaia
formed two entities to complete the purchase: Plaintiff Shathaia Brothers Property,
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LLC (“SBP”) to purchase the building in which GMM operates and Plaintiff
Shathaia Brothers, Inc. (“SB-Inc.”) to purchase the business, including all of its
inventory and equipment. Mr. Shathaia is the sole member or shareholder of these
entities. On March 2, 2009, SB-Inc. registered with the State of Michigan to
transact business under the assumed name of “Gratiot-Mayfield Market.” (ECF
No. 55 Ex. 1.)
On May 23, 2008, Mr. Shathaia and Mr. Hakim entered into a purchase
agreement with respect to the business and property related to GMM. (ECF No. 41
Ex. 5.) In the agreement, Mr. Hakim agreed to sell and Mr. Shathaia agreed to buy
the business (including its fixtures, equipment, goodwill, a covenant not to
compete, and inventory) and the real estate. (Id.) Mr. Shathaia executed
assignments on July 30, 2008, effective June 11, 2008, in which he assigned his
purchase rights to SBP (with respect to the real estate) and SB-Inc. (with respect to
the business). (Id.)
On February 27, 2009, SB-Inc. acquired GMM’s business assets from Mr.
Hakim for $103,147.39. (Id. Ex. 6.) On the same date, SBP executed a Land
Contract to acquire the real estate on which GMM operated for $100,000.1 (Id. Ex.
1
The “Settlement Statement Sale of Property” for the transfer of the business
assets and the “Land Contract” are dated “February 27, 2008” and “February 27,
(continued...)
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7.) The Land Contract required SBP to inter alia pay $1,680.99 each month for six
years, pay all taxes for the property, and keep the buildings and land insured
against loss and damage. (Id.) In a lease agreement dated July 22, 2008, SBP
leased the premises to SB-Inc. for a period of five years beginning August 1, 2008,
for a monthly rent of $1,700.00. (ECF No. 52 Ex. 4.) The lease agreement
required SB-Inc. to surrender the property at the end of the lease “in as good
condition as the commencement of the term.” (Id. ¶ 6.) It required SBP to carry
fire and extended coverage insurance covering the premises “in an amount equal to
the replacement value of the building”, although the agreement required SB-Inc. to
pay the entire cost of the insurance. (Id. ¶ 13.)
On February 26, 2009, the Policy was issued providing “coverage” for inter
alia the “building” and the “business personal property” located at GMM’s
address. (ECF No. 52 Ex. 10.) The “named insured” on the Policy is “Gratiot
Mayfield Market” with a mailing address of “13104 Gratiot Ave[nue].” (Id. at
000295.) The Policy insured the building located at 13104 Gratiot Avenue up to
$496,458.00 and the business personal property up to $250,000.00. (Id. at
000298.) Specifically, the coverage provisions provide in part:
1
(...continued)
2009” in different places. Apparently the references to “2008” are in error.
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A.
Coverage
We will pay for direct physical loss of or damage to Covered property
at the premises described in the Declarations caused by or resulting
from a Covered Cause of Loss.
1.
Covered Property
Covered Property, as used in this Coverage Form, means
the type of property described in this Paragraph A.1., and
limited in Paragraph A.2. . . .
a.
Building, meaning the building or structure described in
the Declarations . . .
b.
Business Personal Property located in or on the buildings
described in the Declarations . . ., including:
(1)
(2)
(3)
Property owned by you and used in your business;
Property of others that is in your care, custody or control;
Your use interest as tenant in improvements and
betterments. . . .
(Id. at 000306.) The Policy also provides coverage for actual loss of “business
income” sustained “due to the necessary ‘suspension’ of [the insured’s]
‘operations’ during the ‘period of restoration.’” (Id. at 000307.) The basis for
determining the amount Travelers will pay for business income loss is set forth in
the Policy. (Id. at 000336-37.) The Policy limits Travelers’ “loss payment” with
respect to the building and personal property to the insured’s “financial interest in
the Covered Property.” (Id. at 000333.)
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The policy excludes coverage for loss or damage caused by inter alia
“[d]ishonest or criminal acts by you [the insured], or any of your partners,
‘members’, officers, ‘managers’, ‘employees’ . . ., directors, trustees, authorized
representatives or anyone to whom you entrust the property for any purpose . . ..”
(Id. at 000330.) Pursuant to the Policy’s terms, coverage also is void in the event
of concealment, misrepresentation, or fraud by the insured:
This Coverage Form is void in any case of fraud by you. It is also
void if you or any other insured, at any time, intentionally conceal or
misrepresent a material fact concerning:
a. This Coverage Form;
b. The Covered Property;
c. Your interest in the Covered Property;
d. A claim under the Coverage Form.
(Id. at 000337.) The insured must further satisfy certain conditions for coverage.
(Id. at 000332-33.) For example, the Policy requires the insured to send Travelers
“a signed, sworn proof of loss containing the information [it] request[s] to
investigate the claim.” (Id. at 000333.)
On March 16, 2011, GMM suffered direct physical loss caused by a fire.
There is no dispute that the fire was caused by arson.
GMM submitted a claim to Travelers for coverage under the Policy after the
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fire. Mr. Shathaia hired a public adjustor, Globe Midwest Adjusters International
(“Globe”) to assist him in filing the claim. On June 10, 2011, Jeffrey Molino from
Globe sent Travelers a sworn and signed proof of loss statement (“SSPOL”),
signed by Mr. Shathaia. (ECF No. 52.) Mr. Molino states in his accompanying
letter that an estimate for the building repair and claimed business personal
property are attached but that “[t]he Business Income loss is an on-going item that
will grow larger based on adjustment period and repair period.” (Id.) He writes
that they therefore “have left that item ‘open’ on the Sworn Statement in Proof of
Loss.” (Id.) The SSPOL lists the amount claimed as $454,231.64. (Id.; ECF No.
52 Ex. 5 at 75.)
On several occasions, Travelers requested a detailed business income claim
from Mr. Shathaia and Mr. Molino. (Doc. 52 Ex. 13.) Mr. Shathaia did not
provide a figure for business income loss during his examination under oath
(“EUO”) or deposition during this litigation, nor was an amount provided in
Plaintiffs’ Rule 26(a)(1) initial disclosures or interrogatory responses. According
to Travelers, Plaintiffs also did not identify any documents in their initial
disclosures or in response to Travelers’ discovery requests supporting any
itemization or claim for business income loss. (Doc. 5 at Pg ID 1436.) The first
time Plaintiffs provided Travelers with the amount of the business income loss
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claim ($237,000.00) was on July 26, 2013, when they submitted an expert report
prepared by Mr. Molino. According to Plaintiffs, Travelers received the
documentation used to determine the amount of the claim (including GMM’s
financial records) prior to Mr. Shathaia’s EUO. (ECF No. 55 at Pg ID 1827, citing
ECF No. 50 Ex. 5 at 68.)
For some unknown reason, however, Mr. Shathaia testified at his EUO that
the amount contained in his SSPOL represented the amount he was claiming and
that there were no additional amounts being claimed.2 (ECF No. 50 Ex. 1 at 279.)
Further, during his deposition in this litigation on August 5, 2013, Mr. Shathaia
conceded to Travelers’ counsel that he had not provided Travelers with an amount
claimed for business income loss. (Id. Ex. 6 at 80.)
In a letter to Mr. Shathaia dated June 27, 2012, Travelers denied GMM’s
claims for coverage. (ECF No. 41 Ex. 14.) Travelers cited several reasons for its
decision. First Travelers referred to its finding that the fire had been intentionally
set by Mr. Shathaia or someone acting in privity with him or on his behalf. (Id.)
Next Travelers informed Mr. Shathaia that it had concluded he made false
statements with respect to the claims and Travelers’ investigation and failed to
2
The Court notes that Mr. Shathaia immigrated to the United States from Iraq
in 1994 and, according to Plaintiffs, is limited in his ability to read and write
English. (See ECF No. 41 at 9, 15.)
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provide a satisfactory SSPOL. (Id.) Finally, in support of its decision to deny
building coverage, Travelers cited its finding that the real estate was owned by SBInc. which is not an insured under the Policy. (Id.)
Plaintiffs responded by filing the pending Complaint in Michigan state court
on July 30, 2012. In their Complaint, Plaintiffs assert a single breach of contract
claim against Travelers. Travelers removed the Complaint to federal court based
on diversity of citizenship on August 17, 2012. Thereafter, on July 12, 2013,
Plaintiffs filed their pending motion for summary judgment. Travelers filed its
cross-motion for summary judgment on August 30, 2013.
III.
Plaintiffs’ Motion
Plaintiffs argue in their summary judgment motion that there is no genuine
issue of material fact with respect to their entitlement to coverage under the Policy
and their claim that Travelers is wrongfully denying coverage. Plaintiffs therefore
ask the Court to grant them summary judgment, find that they are entitled to partial
coverage in the amount of $454,231.64, order an expedited trial for determination
of business income, “extra expenses”, and “extended business income” loss under
the Policy, and award them costs and attorney fees incurred as a result of
Travelers’ wrongful denial of coverage.
In response to Plaintiffs’ motion, Travelers presents facts creating an issue
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for a jury as to whether Mr. Shathaia set or caused to be set the fire at GMM on
March 16, 2011, and thus whether he made false statements concerning the same.
First, the presence of gasoline in different areas of the sales floor and on the roof
provides independent evidence of the incendiary origins of the fire (particularly
where Mr. Shathaia testified that less than a gallon of gasoline was kept on the
premises to fuel a weed wacker and that it was stored near the back wall of the
storage area). The following additional facts could lead a jury to find that Mr.
Shathaia set the fire or caused it to be set:
•Mr. Shathaia and his brother Joner Shathaia (“Jones”) closed GMM
the night of the fire. (ECF No. 41 Ex. 1 at 219-20.)
•The front and side doors were locked when they left and the alarm
was set. (Id.)
•Mr. Shathaia and Joner are the only persons with keys to GMM and
who know the alarm code. (Id. at 220.)
•The roof hatch access in the back storage area was unlocked when
DFD arrived, but the alarm system’s motion sensors did not detect
movement in that area before the front motion sensors detected heat
and/or movement and triggered the alarm at about 2:19 a.m. (Id. Ex.
17 at 51.)
•The motion sensors were operational until the fire disabled the
system. (ECF No. 50 Ex. 16 at Pg ID 1357.)
•The exterior (i.e. front and side) doors were secured when DFD
arrived on the scene. (ECF No. 41 Ex. 1 at 227-28.)
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•Mr. Shathaia had significant net gambling loss that had increased
significantly by the end of 2010.3 (ECF No. 50 Ex. 8 at 7.)
Some of the “facts” Travelers identifies in response to Plaintiffs’ motion to support
its arson defense and/or fraud defense are not material or accurate. Further, there
are facts suggesting that Mr. Shathaia in fact was not responsible for setting or
causing the fire to be set.4 Nevertheless, based on all of the evidence, the Court
concludes that the issue must be presented to a jury.
As such, as stated on the record at the motion hearing, the Court is denying
Plaintiffs’ motion for summary judgment.
3
At the motion hearing, Plaintiffs’ counsel argued that the method used to
calculate Mr. Shathaia’s supposed gambling loss is specious. Plaintiffs, however,
have not identified evidence to refute this calculation at this stage of the
proceedings.
4
For example: SBP regularly paid the monthly amount due on the land
contract before and for even two months after the fire (ECF No. 50 Ex. 2 at 69-70;
Ex. 8 at Pg ID 1220); SB-Inc. regularly made its lease payments, including for the
month of the fire (id. Ex. 2 at 100.); payments on the line of credit used to finance
a portion of the purchase price were made on a monthly basis and no amounts were
past due as of the date of the fire (id. Ex. 8 at Pg ID 1220); GMM’s sales had
increased in the two years since SB-Inc.’s acquisition (id. at Pg ID 1221-22 ), even
if sales were down for a single month prior to the fire (id. at 1221-22, 1228-29);
SB-Inc. had reinvested profits to make over $35,000 in physical improvements and
had tripled GMM’s inventory by February 2011 (id. Ex. 2 at 13; Ex. 8 at Pg ID
1222); Mr. Shathaia was current on the payments due for his home mortgage (id.
Ex. 8 at Pg ID 1224); and there are no indications of any past due payments or late
charges associated with Mr. Shathaia’s or SB-Inc.’s credit cards. (Ex. 8 at Pg ID
1221, 1224.)
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IV.
Travelers’ Motion
A.
Argument
Travelers seeks partial summary judgment in its motion with respect to
several issues. First, Travelers argues that SBP and Mr. Shathaia lack standing to
sue for breach of contract because neither are named as an insured under the
Policy. Next, Travelers contends that because GMM did not own the subject
building and has no financial interest in it, GMM suffered no compensable loss to
be entitled to building coverage. Third, Travelers asks the Court to reject
Plaintiffs’ business income claim due to their failure to submit a SSPOL with
respect to that claim in accordance with the Policy’s terms. Travelers also argues
that Plaintiffs’ business income loss claim and should be estopped from asserting
it. Finally, Travelers claims that Plaintiffs are not entitled under the law or the
Policy’s terms to their requested “hardship damages” or public adjuster or attorney
fees.
B.
Applicable Law and Analysis
1.
SBP’s and Mr. Shathaia’s standing to sue for breach of the
insurance contract
Travelers maintains that the Policy does not name SBP or Mr. Shathaia as an
insured and therefore they lack standing to sue Travelers for breach of contract.
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Plaintiffs do not directly address this issue in response to Travelers’ motion.
“An insurance policy constitutes a contractual agreement between the
insurer and the insured.” West Am. Ins. Co. v. Meridian Mut. Ins. Co., 230 Mich.
App. 305, 310, 583 N.W.2d 548, 550 (1998) (citing Zurich-Am. Ins. Co. v.
Amerisure Ins. Co., 215 Mich. App. 526, 530, 547 N.W.2d 52 (1996)); see also
First Mercury Ins. Co. v. Christopher K. Corp., No. 09-14918, 2010 WL 4683928,
at *2 (E.D. Mich. Nov. 10, 2010) (unpublished op.). “The insurer’s obligations run
to the insured alone.” Christopher K. Corp., 2010 WL 4683928, at *2. An
ownership interest in property covered by an insurance policy does not provide the
owner with standing to sue, unless it is the named insured or an intended thirdparty beneficiary of the contract. Id. (citing Schafer Oil Co. v. Universal
Underwriters Ins. Co., 820 F. Supp. 321, 323 (E.D. Mich. 1993)).
Michigan’s third-party beneficiary statute provides in relevant part:
Any person for whose benefit a promise is made by way of contract,
as hereinafter defined, has the same right to enforce said promise that
he would have had if the said promise had been made directly to him
as the promisee.
(1) A promise shall be construed to have been made for the
benefit of a person whenever the promisor of said promise had
undertaken to give or to do or refrain from doing something directly to
or for said person.
Mich. Comp. Laws § 600.1405. Whether a promise has been made to benefit a
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person not a party to a contract is determined using an objective standard to discern
the contracting parties’ intentions from the contract itself. Schafer Oil Co., 820 F.
Supp. at 323 (citations omitted). The contracting parties’ motives and subjective
intentions are not relevant. Id. (citing Guardian Depositors Corp. v. Brown, 290
Mich. 433, 287 N.W. 798 (1939)). Third-party beneficiary status is not conferred
upon every person who happens to benefit in some way from the contract. Id.; see
also Brunsell v. Zeeland, 467 Mich. 293, 297 651 N.W.2d 388, 390 (2002) (“[T]he
plain language of this [Michigan’s third-party beneficiary] statute reflects that not
every person incidentally benefitted by a contractual promise has a right to sue for
breach of that promise . . ..”)
Nothing in the Policy suggests that Travelers intended to provide coverage
to Mr. Shathaia (personally). As such, the Court concludes that Mr. Shathaia lacks
standing to pursue a breach of contract claim against Travelers and is granting
Travelers’ request for summary judgment as to his claim against it. For the reasons
discussed below, however, the Court finds a genuine issue of material fact with
respect to whether the parties intended SBP to be included as a named insured
under the Policy. If the trier of fact finds that this was not the parties’ intent, the
Court would find nothing in the Policy to confer third-party beneficiary status on
this entity. Nevertheless, this conclusion has no bearing on Travelers’ obligations
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to provide building coverage for the additional reasons discussed below.
2.
Whether “GMM” has suffered a compensable loss
Travelers argues that it owes no obligation to provide coverage for the
building loss because “Gratiot-Mayfield Market”– the only named insured– does
not own the building. Plaintiffs assert the following in response: (1) the Policy
plainly provides coverage for the building up to the policy limit of $496,458.00;
(2) GMM is an assumed name for SBP and SB-Inc. and Plaintiffs do not know
which entity owns what; and (3) GMM is a mere legal fiction and thus construing
the contract as only protecting GMM would render the Policy illusory.
Plaintiffs’ last argument is premised on their incorrect understanding that
Travelers is denouncing all coverage based on a lack of ownership interest (i.e. for
the building because it is owned by SBP and the business personal property
because it is owned by SB-Inc.). If this were Travelers’ argument, the Policy
might be found to be illusory.5 As clarified in Travelers’ reply brief, however, its
argument concerning ownership applies only to the claim for building loss and it
5
An “illusory contract” is “an agreement in which one party gives as
consideration a promise that is so unsubstantial as to impose no obligation” . . . “in
the realm of insurance . . . ‘[t]he doctrine of illusory coverage’ encompasses a rule
requiring an insurance policy to be interpreted so that it is not merely a delusion to
the insured.” Cincinnati Ins. Co. v. Hall, No. 308002, 2013 WL 3107640, at *5
(Mich. Ct. App. June 20, 2013) (unpublished op.).
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understands SB-Inc.– in whose name GMM does business– to be the insured.
To the extent Plaintiffs assert that they did not know which entity owns
what, Plaintiffs’ second argument is frivolous. Nevertheless, the Policy only
identifies “Gratiot Mayfield Market” as the named insured. There is no evidence
suggesting that Travelers was aware that “GMM” was an assumed named for SBInc., only, when it issued the Policy. When asked by the Court at the motion
hearing, Travelers’ counsel indicated that the Michigan Filing Endorsement was
not in the independent insurance agent’s files. There is evidence that Plaintiffs set
up different entities for the purpose of purchasing the building and business;
however, there also is evidence that they operated the entities as one. For example,
Plaintiffs’ counsel indicated at the motion hearing that only SB-Inc. had a bank
account and that all payments (whether contractually owed by SB-Inc. or SBP)
were paid from that account. As such, and given that the Policy reflects a clear
intent to cover the building in which the market operated, the Court finds a
question of fact as to who the parties’ intended the named insured to be under the
Policy. But even if the trier of fact concluded that SB-Inc. was the only intended
insured, the Court holds that it has a compensable loss.
In the Policy’s coverage provisions, the covered property includes the
“Building, meaning the building or structure described in the Declarations . . ..”
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(ECF No. 52 at 000306.) The subject building is listed on the Declarations. (Id. at
000298.) The Policy does not limit building coverage to property owned by the
insured; whereas such a limitation is specifically stated for other covered property,
such as business personal property. (See, e.g., id. at 00306, defining the covered
“business personal property” as including “[p]roperty owned by you and used in
your business” (emphasis added).) In fact in Section III of the Policy, titled
“Limits of Insurance,” the Policy specifically indicates that the premises covered
need not be owned by the insured, but may be property rented. (Id. at 000372.)
While the Policy’s “Loss Payment” provision states that Travelers “will not pay
you more than your financial interest in the Covered Property” (id. at 000333), the
Court finds that SB-Inc. has a financial interest equal to the cost of repairing or
replacing the building.
The term “financial interest” is not defined in the Policy. Therefore it is
accorded its plain and ordinary meaning. City of Grosse Pointe Park v. Mich.
Mun. Liab. & Prop. Pool, 473 Mich. 188, 199, 702 N.W.2d 106, 113 (2005)
(citation omitted). Michigan courts have defined the term as follows:
“Financial is commonly understood to pertain or relate to money
matters; pecuniary. . . . Interest may be understood to pertain to . . . a
business, cause, etc., in which a person has a share, concern or
responsibility. . . . a legal share, right, or title, as in the ownership of
property or in a business undertaking . . ..”
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Anika & Assoc., Inc. v. Hartford Cas. Ins. Co., No. 11-12534, 2013 WL 1499532,
at *9 (E.D. Mich. Apr. 10, 2013) (unpublished op.) (quoting J.D.’s Pub & Grub,
Inc. v. North Pointe Ins. Co., No. 256634, 2006 WL 2271306, at * (Mich. Ct. App.
Aug. 8, 2006) (unpublished op.) (internal quotation marks and citation omitted)).6
This Court was not able to locate any Michigan cases addressing whether a
tenant has a financial interest in the property it rents and Travelers indicates that
the issue has never been addressed in Michigan. (See ECF No. 50 at Pg ID 1444.)
However, several treatises on insurance law indicate and cite cases finding that “[a]
lessee has an insurable interest in the leased property, and in the improvements
which he or she places on the leased property.” 44 C.J.S. Insurance § 346 (2013);
see also 44 Am. Jur. 2d Ins. § 955 (2013); 3 Couch on Ins. § 42:51 (3d ed. 2013).
The same authorities provide that this is particularly true where the lessee is
contractually obligated to surrender the leased premises in the same condition as
when the lessee took possession. Id.; see also Burroughs Corp. v. Barry, 380 F.2d
6
The Michigan courts’ interpretation of the related term “insurable interest”
provides guidance as well. The Michigan Court of Appeals has explained:
“Whether an individual has an insurable interest is not determined by the label
attached to the insured’s property right, but rather by whether the individual will
suffer a direct pecuniary loss as a result of the destruction of the property.” Secura
Ins. Co. v. Pioneer State Mut. Ins. Co., 188 Mich. App. 413, 470 N.W.2d 415, 416
(1991) (citing Crossman v. Am. Ins. Co. of Newark, 198 Mich. 304, 311, 164 N.W.
428 (1917)).
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427 (6th Cir. 1967) (citing cases to find it “well settle[d] that one who derives a
benefit from the continued existence of a chattel or would be damaged by its
destruction has an insurable interest, whether he has or has not any title in the
property itself . . .” and that “[t]his is particularly true where the lessee has agreed
to keep the property insured and in good order and to return the property, or its
value, at the end of the term.”) A case cited by Travelers for a different
proposition also supports a finding that a tenant may have an insurable interest in
the building in which it operates a business. See Asmaro v. Jefferson Ins. Co. of
New York, 574 N.E.2d 1118, 1121 (Ohio Ct. App. 1989) (finding that the insurer
was not liable to the building owner as he was not a named insured, but concluding
that the insured tenant had an insurable interest in the building in which it operated
a neighborhood grocery store which depended on walk-in customers).
As Travelers points out, the agreement between SBP and SB-Inc. for the
latter’s lease of the premises, required SBP to carry fire and extended coverage
insurance covering the premises during its term. (ECF No. 50 Ex. 4 ¶ 13.)
Notably, however, SB-Inc. was required to pay the entire cost of the insurance on
the building. (Id.) Perhaps more importantly, SB-Inc. was obligated under the
“Care of Premises” provision of the lease to surrender the premises at the end of
the lease “. . . in as good condition as the commencement of the term, reasonable
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use and wear thereof excepted.” (Id. ¶ 6.) This was a different provision than the
“Maintenance and Repair” provision referred to by Travelers’ counsel at the
motion hearing. (See id. ¶ 11.)
Contrary to the representation also made by Travelers’ counsel at the motion
hearing, paragraph fourteen of the lease does not clearly require SBP to rebuild and
restore the building in the event of a fire. Paragraph fourteen only addresses
whether rent must be paid in the case of fire damage. Additionally in doing so, the
provision creates some ambiguity as to who must insure the premises. This
paragraph states in its entirety:
DAMAGE BY FIRE OR OTHER CASUALTY. If the building shall
be damaged or destroyed in whole or in part by fire or other cause and
is rebuilt and restored to a good and tenantable condition by Landlord
within a reasonable time, the rental shall abate, entirely in case the
entire Demised Premises are untenantable, until same shall be restored
to a tenantable condition. If Tenant shall fail to adjusts its own
insurance within a reasonable time and as a result thereof the
repairing and restoration is delayed, there shall be no abatement of
rental as above provided during the term of such delay; and the Tenant
shall use any part of the Demised Premises for storage during the
period of repair, a reasonable charge for which shall be made against
Tenant. In case the building is not repaired or restored, this Lease
shall be terminated.
(Id. ¶ 14, emphasis added.)
For these reasons, the Court finds a genuine issue of material fact as to
whether SBP was intended to be included as a named insured under the Policy.
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Additionally, the Court concludes that, even if SBP was not, SB-Inc. had a
contractual duty to repair or replace the building when it was damaged by fire
during the term of the lease. As such, SB-Inc. had a financial interest in the
building where it operated GMM.
For these reasons, the Court is denying Travelers’ request for summary
judgment based on its argument that Plaintiffs cannot recover on the building loss
claim.
3.
Whether SB-Inc.’s business income claim should be
dismissed
Travelers argues that SB-Inc.’s business income claim should be dismissed
due to Plaintiffs’ failure to comply with the Policy’s SSPOL requirement and/or
because they waived such a claim.
As the Sixth Circuit Court of Appeals has recognized, under Michigan law,
“[i]f so provided in an insurance policy, an insured’s obligation to provide proof of
loss is a condition precedent to his receipt of benefits.” Korn v. Paul Revere Life
Ins. Co., 382 F. App’x 443, 447 (2010); see also Dellar v. Frankenmuth Mut. Ins.
Co., 173 Mich. App. 138, 145, 433 N.W.2d 380, 383 (1988) (“Clearly, the failure
to file a signed and sworn proof of loss within sixty days of the loss bars recovery
on a claim without regard to whether the insurer is prejudiced by such failure.”).
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The Sixth Circuit further recognizes, however, that “Michigan law requires only
‘substantial compliance’ with the proof-of-loss requirement.” Id. (citing Westfield
Ins. Co. v. Appleton, 132 F. App’x 567, 570 (6th Cir. 2005)); see also Jajo v.
Hartford Cas. Ins. Co., No. 237955, 2002 WL 31940977, at *1 (Mich. Ct. App.
Nov. 26, 2002) (unpublished op.) (citing Gibson v. Grp. Ins. Co., 142 Mich. App.
271, 275, 369 N.W.2d 484, 486 (1985)).
In determining whether there has been “substantial compliance” with a
policy’s proof of loss requirement, Michigan courts consider the three identified
policy objectives of the requirement: “‘(1) allowing the insurer an opportunity to
investigate the loss; (2) allowing the insurer to estimate its rights and liabilities;
and (3) preventing fraud.’” Westfield Ins. Co., 132 F. App’x at 574-75 (quoting
Wineholt v. Cincinnati Ins. Co., 179 F. Supp. 2d 742, 752 (W.D. Mich 2001)).
The district court advised in Wineholt that substantial compliance requires “more
than a minimal effort.” Id. Further, “the insured must make a ‘reasonable effort to
provide information reasonably within its possession and with a sufficient degree
of particularity to allow the insurer to make an informed review of the claim.’” Id.
Generally, the question of whether an insured has substantially complied with a
proof-of-loss requirement is a question of fact not to be decided on summary
judgment. Korn, 382 F. App’x at 448 (citing Griswold Properties, LLC v.
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Lexington Ins. Co., 275 Mich. App. 543, 574, 740 N.W.2d 659, 677 (2007)). In
this case, the Court finds that a reasonable fact-finder could conclude that Plaintiffs
did not waive SB-Inc.’s business income claim and substantially complied with the
Policy’s proof-of-loss requirement.
A SSPOL, signed by Mr. Shathaia, was submitted to Travelers on June 10,
2011, which provided specific amounts for SB-Inc’s building and business
personal property claims. The SSPOL specifically states that “Business Income
Loss and Claim remain ‘open’”. (ECF No. 50 Ex. 7 at Pg ID 1186.) Mr. Molino’s
letter accompanying the SSPOL explained that “[t]he Business Income loss is an
on-going item that will grow larger based on adjustment period and repair period.
Therefore we have left that item ‘open’ on the Sworn Statement in Proof of Loss.”
(Id. at Pg ID 1185.) Travelers received this information before Mr. Shathaia stated
(or rather misstated) during his EUO that SB-Inc. was making no additional claims
other than the covered property and business personal property claims.
It is not evident from the record why Plaintiffs did not provide a specific
figure for the business income claim until late in this litigation. Nevertheless,
Travelers was provided the documentation used to calculate the claim during the
claim investigation process and received a figure for the amount claimed prior to
Mr. Shathaia’s deposition in this litigation. As such, the Court believes that a trier
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of fact could find the three intended purposes of the proof-of-loss requirement
satisfied by Plaintiffs.
The Court therefore denies summary judgment to Travelers with respect to
Plaintiffs’ business income claim.
4.
Whether Plaintiffs’ claim for “hardship damages” should
be dismissed
Travelers seeks summary judgment with respect to Plaintiffs’ claim for
$300,000.00 in “hardship damages” which include “lost opportunity” and alleged
financial and emotional distress. According to Travelers, these damages are
speculative and not factually grounded, not covered by the Policy, and unavailable
as a matter of law.
In a report he prepared for this litigation, Mr. Molino includes certain
“hardship damages” as damages sustained as a result of the fire. (ECF No. 50 Ex.
9.) Mr. Molino estimates the value of these damages at $300,000. (Id. at Pg ID
1238.) As examples of what comprises these damages, Mr. Molino lists: the land
contract payments SBP was not able to make following the fire and the interest
accruing on those payments; investments the “insured” would have been able to
make had he enjoyed a consistent stream of income from his business; and
emotional distress. (Id.) Mr. Molino testified during his deposition in this
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litigation that the value placed on these damages was purely speculative, not
calculated, and not supported by documentation. (ECF No. 52 at 92-97.)
“Michigan law follows the rule of Hadley v. Baxendale, 156 Eng. Rep. 145
(1854), that ‘the damages recoverable for breach of contract are those that arise
naturally from the breach or those that were in the contemplation of the parties at
the time the contract was made.’” Salamey v. Aetna Cas. & Sur. Co., 741 F.2d
874, 877 (6th Cir. 1984) (quoting Kerwin v. Massachusetts Mutual Life Ins. Co.,
409 Mich. 401, 414, 295 N.W.2d 50, 52-53 (1980)). In the context of commercial
contracts, this “generally results in a limitation of damages to the monetary value
of the contract had the breaching party fully performed under it.” Kerwin, 409
Mich. at 415, 295 N.W.2d at 53. “The damage suffered upon the breach of the
agreement is capable of adequate compensation by reference to the terms of the
contract.” Id. at 417, 295 N.W.2d at 54.
The Policy does not contemplate Travelers’ payment of the “hardship
damages” identified by Mr. Molino. In fact, the Policy specifically limits coverage
to the “Limit of Insurance shown in the Declarations, Schedules, Coverage Forms,
or endorsements.” (ECF No. 52 Ex. 10 at 000331.) Further, the only “hardship
damage” that might naturally flow from Travelers’ alleged breach is SBP’s
inability to continue making timely payments on the land contract due the GMM’s
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loss of revenue and inability to pay its rent. Mr. Molino acknowledged, however,
that he is unaware of any demand by the land contract owner for the past due
payments or for interest on those payments. (ECF No. 52 Ex. 5 at 91-92.)
For these reasons, and because the Court agrees with Travelers that
Plaintiffs’ damages are speculative, the Court is granting summary judgment to
Travelers on Plaintiffs’ claim for “hardship damages.”
5.
Whether Plaintiffs can recover public adjuster or attorney
fees
Lastly, Travelers seeks summary judgment with respect to Plaintiffs’ claim
for public adjuster and attorney fees. The Policy explicitly provides that Travelers
will not provide coverage for these fees when incurred as part of the claim process:
Claim Data Expense
(1)
We will pay the reasonable expenses you incur in preparing
claim data when we require such data to show the extent of loss.
This includes the cost of taking inventories, making appraisals,
preparing income statements, and preparing other
documentation.
(2) Under this Additional Coverage, we will not pay for:
(a)
Any expenses incurred, directed, or billed by or payable
to attorneys, insurance adjusters or their associates or
subsidiaries.
(ECF No. 50 Ex. 10 at 000310). Further, as to attorney fees, Michigan law is clear
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that an insured is not entitled to recover such fees as an element of damages against
an insurer for breach of contract. Burnside v. State Farm Fire and Cas. Co., 208
Mich. App. 422, 528 N.W.2d 749 (1995) (expressly rejecting the Sixth Circuit’s
holding in Murphy v. Cincinnati Ins. Co., 772 F.2d 273 (1985), and holding that
“the application of the American rule precludes recovery of attorney fees incurred
as a result of an insurer’s bad-faith refusal to pay a claim.”); see also Paul Revere
Life Ins. Co. v. Wilner, Nos. 98-2172, 98-2230, 2000 WL 1290365, at *3 (6th Cir.
Sept. 1, 2000) (unpublished op.) (following Burnside to conclude that the insured
was not entitled to attorney fees even if the insurer impermissibly contested the
policy).
The Court therefore is granting summary judgment to Travelers with respect
to Plaintiffs’ claim for public adjuster and attorney fees.
V.
Conclusion
For the reasons discussed, the Court finds a genuine issue of material fact
with respect to whether: (1) coverage under the Policy is void due to the defenses
asserted by Travelers; (2) SBP is an intended insured under the Policy; and, (3)
Plaintiffs can recover on the business income claim. The Court finds as a matter of
law that Plaintiffs can recover on their property claim, even if SB-Inc. is the only
intended insured and even though it is not the owner of the property (assuming that
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Travelers’ arson defense or fraud defense do not bar recovery). The Court,
however, finds no genuine issue of material fact and concludes as a matter of law
that: (1) Mr. Shathaia lacks standing to pursue a breach of contract claim against
Travelers; (2) Plaintiffs are not entitled to their claimed “hardship damages”; and
(3) public adjuster and attorney fees are not recoverable in this breach of contract
action.
Accordingly,
IT IS ORDERED, that Plaintiffs’ motion for summary judgment is
DENIED;
IT IS FURTHER ORDERED, that Travelers’ motion for partial summary
judgment is GRANTED IN PART AND DENIED IN PART, as such Plaintiff
Tam Shathaia is DISMISSED AS A PARTY to this litigation;
IT IS FURTHER ORDERED, that a Final Pretrial Conference is scheduled
for December 9, 2013 at 2:00 p.m. in Room 867 of the Theodore Levin U.S.
Courthouse, 231 W. Lafayette, Detroit, Michigan 48226.
DATED: November 21, 2013
s/PATRICK J. DUGGAN
UNITED STATES DISTRICT JUDGE
Copies to:
Raechel M. Badalamenti, Esq.
Elizabeth P. Roberts, Esq.
Michele A. Chapnick, Esq.
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